It’s not going to happen with the new Bill, which is in my humble opinion ill-conceived, does not address the real problems, and appears to be the path to a massive crisis in the profession.

Let’s for a moment imagine that nothing exists and we can begin with a blank slate.

The first thing to understand is the property is the centre of it all, not the parties.

Control the pivot, which is the property, and you control the associated parties and the transaction itself.

Let’s consider a hypothetical example. A wants to sell A’s home. A approaches agent X, who is a registered estate agent. X sits with A and from X’s smartphone accesses the property hub and creates a unique transaction number, which is created by inputting the owner’s details and the property description. This hub would likely work on a blockchain type technology, for added security.

This creates a virtual file. In the file are the property details, owner details, ID number, SARS reference, and bond details. The system now automatically links to SARS, the financial institution holding the mortgage bond, FICA, the deeds office, and the central estate agent register.

The agent cannot open a file without being in good standing with the authority, nor could an intern, without the verification of a suitably qualified agent being present.

Once created, the mandate period, type of mandate, the commission agreed (with VAT if applicable), and all other details are captured. This is then sent to the seller’s phone or computer to be verified, along with owner’s login details to the file, granting the owner access to relevant information. The hub could also provide a message board for sending messages between the parties. If there are multiple agents this would help make sure they are all on the same page.

At this point, FICA information and KYC documents could be scanned an uploaded to the central hub. This would provide real-time verification and a more effective system for FICA. It would also make compliance easier for the majority of transactions, while more advanced KYC processes could be done at the office. Given cell phone cameras live photos of the parties could also be taken and uploaded.

At this stage, the agent and the buyer agree on whether or not the selling agent will ‘share’ on the transaction i.e. share commission if another agent brings a buyer. Once selected the selling agent is bound to their election and the terms of sharing i.e. 60:40 etc.

The seller is guided through disclosure of the defects on the property. This must take a similar form the way rental inspections are captures (room by room), the disclosure must also refer to elements like crime which has affected the home over the past 5 years, any developments in the area which may affect the property, any forms of nuisance (like loud neighbours etc). This disclosure form must be signed by the seller/s confirming the details. If any repairs have been undertaken the nature and extent of these must be captured along with copies of warranties etc being uploaded.

An agent would also have to capture their assessment of likely selling price.

Once the owner has authorised the transaction, either through electronic signature or through a written document (which would be uploaded), the agent may then begin marketing.

It could be required that no property portal may feature any listing which does not have a transaction key generated by the hub.

Now, along comes agent Y who has a buyer. She clicks on the advert and her buyer is preapproved and loves the property. Agent Y clicks on the hub link and sees the sharing arrangments on the property. If sharing is ticked and Agent Y is happy with the terms, Agent Y can click on the hub link and registers an interest in the property and a request to view, if not actioned by X the owner is advised that X is not sharing and will receive notification of the refusal. If sharing is ticked, but the selling agent refuses or neglects to assist they run the risk of cancellation of their mandate. This will prevent agents who tell their client that they share but in reality block buyers agents, even if it means losing the sale.

A buyer now appears who wants to put in an offer.

Firstly, they view the property and if they are qualified either through pre-approval, proof of funds, and/or a combination of these, they are forwarded a copy of the disclosure form, which they must sign, also confirming that they have viewed the property. At this stage, they will also need to view the title deed and request any clarifications from the transfer conveyancer.

If they elect to put in an offer, the offer is completed by the agent and if accepted by the seller, it is captured into the hub and the document uploaded.

At this point, a due diligence process needs to be initiated.

The buyer needs to prove they are pre-approved and/or provide proof of funds;

An expert needs to provide a declaration that they have obtained the approved plans (which are then uploaded into the hub), confirmed that the plans accord with what has been built and is in accordance with the approved usage, and finally that the erf’s extent is correct.

A confirmation that the buyer has after being provided with the seller’s declaration viewed the property with the agent and found it to be in order;

That the buyer has elected or elected not to use a property inspector;

That plumbing and drainage certificate has been filed;

That an electrical and borer beetle certificates have been or will be filed.

A plant certificate has been filed.

At this point, after viewing and considering all the information, the buyer has 48 hours to confirm that they are proceeding with the transaction.

If the buyer agrees to proceed, the buyer can then through their transaction key, authorise a bond originator, financial institution or a combination of these to apply for their bond. The banks can use the hub to access information to which they are entitled.

As soon as a buyer accepts a quote, the other financial institutions access to the file is revoked.

If they elect to use a conveyancer other than the transferring conveyancer, they can add their conveyancer using their transaction key and they will also be granted relevant access.

The transfer conveyancer at this stage notifies the parties that the conveyancing process will now commence, pending the satisfaction of suspensive conditions.

At this point, the bank who holds the bond can instruct the cancellation attorneys and they will likewise get access through the on that bank’s transaction key.

The hub at this stage is populated with all the information needed by the various role players based on required access only basis. This means that information can be confirmed and its veracity triangulated with ease. This will also greatly assist when electronic registrations become a reality.

As the transaction progresses, the hub will also provide a log of events for information update purposes while providing a record of the transaction.

The hub will also capture financial aspects like for example say this is a shared deal the hub will know that the commission of R50,000 (plus VAT if applicable) is shared 60:40 so Super Real Estate (X’s agency which is VAT registered) will get R30,000 + R4,500 = R34,000, while Speedy Estates (who is not registered for VAT) gets R20,000.

The hub will not allow an estate agent who is not registered for VAT to receive VAT and will also ensure that the VAT number is the VAT number associated with that agency to eliminate VAT fraud.

Buyers and seller could also rate the service providers in a safe space.

Now comes an additional benefit of this system:

All parties have access to updated verified information in real time;

No rogue agent can practice because of the system tracking the funds;

Fronting will be made incredibly difficult especially with phones now having biometric facilities;

If the hub is correctly set up it will guide the parties through the process and ensure timeous compliance;

Certain information once captured remains part of the property going forward. (Say a transaction collapses for whatever reason – the property inspectors report will be carried forward to the next transaction preventing a seller hiding defects.

Compliance by agents will be made easier;

SA could then produce brilliant stats on the profession, instead of what is occurring at present

Agents can then draw stats such as valuation accuracy, actual time from the mandate to sale, client satisfaction, which could provide an objective record of an agent’s performance

A better system is possible but what we have and what the new Bill is proposing is not it.

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https://clintonbegley.co.za/2019/01/18/real-estate-sales-re-imagined/feed/0visionclintonbegleyzaThe Draft Expropriation Bill, 2019 some random personal thoughts, observations, and questions.https://clintonbegley.co.za/2018/12/29/the-draft-expropriation-bill-2019-some-random-personal-thoughts-observations-and-questions/
https://clintonbegley.co.za/2018/12/29/the-draft-expropriation-bill-2019-some-random-personal-thoughts-observations-and-questions/#respondSat, 29 Dec 2018 18:11:39 +0000http://clintonbegley.co.za/?p=1348Continue Reading →]]>[Please note this is a personal opinion by an estate agent – not an attorney and it is of interest value only and cannot in any way be used or relied upon in any way. If you need advice on the Bill, go and consult your legal advisor]

The Draft Expropriation Bill (see the link to the Bill) was published for comment on the 21st December. This is a highly significant piece of legislation because it deals expropriation of property (see definition in the Bill).

There are legitimate instances where expropriation is required for example when a road needs to cross a piece of land and the owner refuses.

Although I have never professed to be an expert on legislation, I would go so far as to say that there was no real reason for this bill. The constitution allows sufficient clarity on the process and what was required for expropriation and after all the existing expropriation legislation has not been a problem, until a year back, when certain parties made ‘expropriation without compensation’ part of their political narrative, in the run-up to the election.

It is said that the State has a large number of properties that it has gained ownership of, which have not been allocated to anyone or where the projects failed. This begs the question: is there any real urgency or is this just a natural and predictable consequence of a deeply flawed, inefficient system?

It, therefore, appears more likely that the lack of progress of land ownership may be a product of the government’s level of efficiency over almost a 1/4 of a century, rather than the existing legislation being the problem.

The other interesting point is that the king of the Zulu’s owns substantial amounts of land through the Ingonyama Trust, which is said to control of an incredible 2.8 million hectares of land. He has demanded that the government exclude his property from the law. It has also been stated that many traditional leaders feel the same.

This poses a considerable conundrum for the government, apart from the threat of conflict, traditional leaders have considerable sway with their people and this translates into a large chunk of votes. The people living on these traditional leaders’ land are farmers, would conceivably directly benefit by the security of tenure, and would benefit personally from mining concessions etc, which are presently being paid to the traditional leaders in addition to their State allowances, as traditional leaders.

Then there is a matter of the constitution which states:

25. (1) No one may be deprived of property except in terms of law of general application

Section 25 states the law needs to be of ‘general application’, in other words, that all owners of land need to be subject to the law. In terms of the constitution of our country, every person is equal, which includes traditional leaders.

If it appears that one (extremely small) portion of the population is being excluded (despite disproportionally high ownership of property), while another portion of the population is being targeted, this will not amount to a law of general application.

Now the bill proposes compensation but how much land can the state buy given its present financial position?

So when can land be expropriated?

It must be for ‘public purpose’ or in the ‘public interest’. Public purpose is defined in the bill as:

including any purposes connected with the administration of the provisions of any law by an organ of state;

This is a very wide term, as is ‘public interest’.

It would therefore not take a top lawyer to justify why it would be in ‘public purpose’ or ‘public interest’ to expropriate any property. So given the amount of unutilised land owned by the State alone, you would assume that it would be fair game? Think again.

… an expropriating authority may not expropriate the property of a state-owned corporation or a stateowned entity without the concurrence of the executive authority responsible for that corporation or entity.

So despite compelling ‘public purpose’ or ‘public interest’, if the executive authority says no to the expropriation authority, the expropriation is blocked. But was expropriating unused state and SOE properties not a reason given for needing the new act?

Now what will trigger an expropriation, let’s look at section 3(2):

If an organ of state, other than an expropriating authority, satisfies the Minister that it requires particular property for a public purpose or in the public interest, then the Minister must expropriate that property on behalf of that organ of state upon its written request, subject to and in accordance with the provisions of this Act.

Now given the sheer number of State organs and the plethora of connected civil servants would it not be conceivable that such an official could for personal gain or in exchange for an inducement start the process? Given the recent developments which came to light with the Guptas being able to acquire a mine, while a SOE basically helped pay for it while they colluded to collapse another supplier, does not make abuse of this process inconceivable. If one looks at similar expropriation exercises in countries like Zimbabwe and Venezuela, what started as a being billed as a well-intentioned way to empower those without land soon went another direction.

Now this bill would in effect make the Minister responsible for Public Works incredibly powerful position given his ability to expropriate other’s property, using the powerful machinery of the State.

Morgage Bonds

Now, for most property owners the mortgage bond is a major part of how they legally purchased their property and represent a major debt for many buyers. It must be remembered that a mortgage bond is merely security for the main agreement which is the loan agreement between the purchaser and the bank. The fact that the property has been expropriated, removes the bank’s security but does not cancel the purchaser’s liability to the bank.

Section 9(1) d states:

“…the property remains subject to all registered rights in favour of third parties, with the exception of a mortgage, with which the property was burdened prior to expropriation, unless or until such registered rights are expropriated from the holder thereof in terms of this Act.”

It is highly unlikely that the State will elect to expropriate the mortgage as part of the property expropriation, which means that the owner will still be liable to the financial institution. It may very well be that the financial institution, stripped of its security will foreclose on the loan.

The owner will need to hope that the compensation agreed is sufficient to cover the indebtedness to the bank. the problem could theoretically happen that in the first few years that the costs of acquisition and the interest exceed the value of the property, in which case a possible loss may very well be on the cards.

Section 12 determines how the compensation for the property is to be arrived at. What is going to be a point of contention is the possibility of NIL COMPENSATION, where s12 (3) which states:

(3) It may be just and equitable for nil compensation to be paid where land is expropriated in the public interest, having regard to all relevant circumstances, including but not limited to:
(a) Where the land is occupied or used by a labour tenant, as defined in the Land
Reform (Labour Tenants) Act, 1996 (Act No. 3 of 1996);
(b) where the land is held for purely speculative purposes;
(c) where the land is owned by a state-owned corporation or other state-owned
entity;
(d) where the owner of the land has abandoned the land;
(e) where the market value of the land is equivalent to, or less than, the present
value of direct state investment or subsidy in the acquisition and beneficial capital
improvement of the land.

Farmers may find that a raft of expropriations begin to occur around labour tenants where this act is used to in effect give them ownership of part of the farm where they work. The long-term effect on farms especially after a few decades could be substantial.

It must be noted that 12(3)b states that land bought for speculative purposes could potentially affect many long-term investors, who possibly anticipate to later develop land when the market is optimal. This clause may also impact business people who maybe see an opportunity to buy a low-value property and sell it again shortly thereafter to a developer. In both these cases, the land could be expropriated in terms of the bill, making greatly increasing the risk profile of development land.

This clause may also mean that if the State purchased a farm for an emerging farmer, that farm may very well be subject to expropriation with nil compensation.

What if the parties cannot agree on the compensation (if applicable)?

The parties can agree to mediation or if that fails a competent court will make a finding.

NOTES:

SA is a big country with no real shortage of land.

Given the professed desperate need for land, it is possibly concerning that the government did not first address the surprisingly large portion of the unutilised land being owned by the State, already expropriated land which has not been transferred to new owners, and of course the properties owned by the raft of failed projects, where government investment far exceeds the property, as it stands presently.

Only time will tell if this Bill is applied to all South African and not just used to target a few based on arbitrary criteria like race, economic status, or arbitrary exemptions based on their status as traditional leaders.

The bill does not provide nearly enough detail in many instances e.g. such as when a property is deemed to be used for ‘speculative purposes’?

It very may be that the Bill (especially in the present political climate in SA) will negatively impact on the property as an asset class, specifically investors who buy for speculation.

If land owned by labour tenants is expropriated, what will the long-term effect be on farms where there are a number of labour tenants who become owners of parts of the farm, in addition to their extensive protections under the Land Reform (Labour Tenants) Act, 1996 (Act No. 3 of 1996)?

If section 25 of the Constitution were ever to be amended AFTER this Bill becomes law that could have massive implications for the economy in South Africa.

[Please note this is a personal opinion by an estate agent – not an attorney and it is of interest value only and cannot in any way be used or relied upon in any way. If you need advice on the Bill, go and consult your legal advisor]

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https://clintonbegley.co.za/2018/12/29/the-draft-expropriation-bill-2019-some-random-personal-thoughts-observations-and-questions/feed/0The Draft Expropriation Bill, 2019 some random personal thoughts, observations, and questions IMAGEclintonbegleyzaA New Year brings BIG changeshttps://clintonbegley.co.za/2018/12/21/a-new-year-brings-big-changes/
https://clintonbegley.co.za/2018/12/21/a-new-year-brings-big-changes/#respondFri, 21 Dec 2018 10:05:53 +0000http://clintonbegley.co.za/?p=1332Continue Reading →]]>My decision to align with OPEN REALTY was announced just a day ago. The reaction to the decision was mixed, as expected. While most of the comments have been very positive, there have been some more ardent clients and a small number of colleagues, who expressed concerns.

It is important to remember that as a real estate professional, one needs to always keep in mind the financial aspects of your real estate business, as a business. Here are a few reasons which made the collaboration a great idea.

LEADERSHIP

I have been in many leadership positions and it’s always important to consider the leadership dynamic. Mike Thomas, the principal is not a narcissist, selfish, money-crazed, disrespectful, or even dismissive of his agents. In all my years in real estate, I have never seen a principal of firm with this many agents who has a desk amongst his agents with no walls – totally blows away the whole “open door” concept.

I found Mike to be a true servant leader who puts the team first. He is humble, open to inputs from others, gives others a voice, and is empathetic, while also having a clear grasp of the business’s requirements, which is required of a principal.

FLEXIBILITY

The move to OPEN REALTY was motivated by the fact that they could accommodate my business and its very unique demands. All estate agents work slightly differently from each other and from other professions. If I was to partner with a brand – it would need to be flexible enough to accommodate these variations, which are germane to real estate.

VALUE EXISTING PROFESSIONAL RELATIONSHIPS

OPEN has allowed me to retain my existing relationships with my conveyancers. An estate agent always needs to ensure that they have a relationship with a professional, efficient, and friendly firm of conveyancers. It was indeed refreshing to see a company which truly understands the value of existing professional relationships and the synergy that they create.

FOCUS ON TRAINING

I love training because focussed, systematic learning, and upgrading knowledge is a key requirement for modern professionals who are operating in an ever-changing and increasingly demanding professional landscape.

OPEN REALTY’s proposed modular education system would tick that box. Now, I realise there are better training systems out there but let’s face the facts most agents may attend training but one has to question the degree of practical integration of the training into their property practices.

But also, who has time for hours and hours of lectures. On the flip side, an unstructured approach is fatal with no structure, this type of approach creates the illusion of training but has a notoriously low-level of effect on improving the level of service the agent can provide.

COMPLIANCE

It is now common knowledge that the new Act governing estate agents is just about to be signed into law. Although I personally do not believe that it was the present Act that was and is responsible for the challenges we now experience in the industry, this act will add further compliance burdens for, especially small operations. OPEN REALTY provides a scaled solution which ensures compliance while remaining cost-effective. I will also not miss those “self-assessments” where the EAAB requires information and documentation which they already have or which they generated originally.

PROFITABILITY

Estate agency is a personal service profession, which can benefit from scale. The benefits of working with a larger team were too many to ignore. In addition, the costs of a small practice’s subscription to even the most basic portals simply does not make financial sense.

SYSTEMS

OPEN REALTY allows me to effectively have my own business or run a team, while being empowered by the OPEN REALTY systems.

COLLABORATION

Although being a sole practitioner is not such a big factor for me, this factor cannot be ignored. Many estate agents feel alone out there.

It’s a tough profession and the camaraderie of other agents really helps. To me, the real advantage is the advantages to my clients are many but the most important is that effectively you don’t have one agent you have more agents working to make your transaction happen.

LOWER ACCOUNTING & AUDITING COSTS

I personally do not agree with the measures introduced by the EAAB to curb fraud etc like auditing business accounts with the trust accounts. These steps do not curb fraud as you will only catch stupid criminals, the detection happens too far down the line, and it has increased the costs from a few hundred Rand to thousands with an estate agent being rated on the same risk profile as a JSE listed companies.

Accounting fees, auditor fees, and other business red tape have made being an estate agent, even more, so a principal increasingly expensive – which begs the question why not consider a scaled solution?

FIXED OFFICES

Although I do have offices at home, there are always times when a client take confidence from the presence of a fixed office. It’s also convenient that one has a place from which clients can collect keys etc, which can be difficult. Clients also perceive a larger office as being more professional.

OFFICE EQUIPMENT

As all agents know we are operating in an increasingly demanding market. You need professionally printing documentation and these machines cost a small fortune if you don’t have the volumes. OPEN REALTY has volumes which leverage scale to provide a custom printed product at a great price per page. It just makes business sense.

DESIGN & PHOTOGRAPHY

I am by no means an expert photographer but I know my way around a DSLR, camera (having take 1000’s of photos many of which was real estate photography), Lightroom, and Photoshop – but it takes time, which is a limited resource.

The in-house photographer and design capacity at OPEN REALTY frees up more time for me to be focussed on my clients. For agents who cannot produce their own high-quality professional images, this option is a no-brainer – because poor quality images negatively affect your client’s property and your chances of selling.

There are many other reasons but be assured that it was a great move.

I look forward to the next year and operating more efficiently and improving my real estate stats and contributing towards this incredible team.

]]>https://clintonbegley.co.za/2018/12/21/a-new-year-brings-big-changes/feed/0cropped-LOGO-BLUE-GREY.pngclintonbegleyzaEstate Agency: Agent or Brand (which makes the difference)?https://clintonbegley.co.za/2018/07/18/estate-agency-agent-or-brand-which-makes-the-difference/
https://clintonbegley.co.za/2018/07/18/estate-agency-agent-or-brand-which-makes-the-difference/#respondWed, 18 Jul 2018 09:47:31 +0000http://clintonbegley.co.za/?p=1270Continue Reading →]]>Choosing the right agent for you is easy. Or is it?

Well, it should be. After all, almost everywhere you go there are billboards, pole signs, for sale boards, adverts, …you get the idea. It was once noted on a social media post by a visitor to Port Elizabeth, that if you want to be famous in PE, become an estate agent. The reality is that we are being bombarded with print, outdoor, and social media advertising by estate agents and their brands.

As a homeowner (thinking of selling), the choices may seem overwhelming.

Then just to add to your dilemma, these agents are with different brands some of which spend millions advertising why their brand is the best. It is not unusual to see brands making statements that they are the biggest, have the most agents, in the most countries, are the real estate leaders, the brand whose agents sell the most,…, the list goes on.

In my experience, when I still practised as a lawyer, practising as an agent, working at one of these brands, and as a home seller; it still remains all about the specific agent.

I am not saying that all those hundreds of millions in paid advertising and strategic marketing promoting the brands is wasted. It serves a function which is to attract and keep estate agents at their brands and make them feel that their brand has done some of the work for them as far as brand recognition is concerned.

Despite, all the hype, your property experience will be determined by one person/s and that is the estate agent you choose. You can have the flashiest brand, the biggest brand, or even if it feeds your ego, the brand which targets aspirations and appearances; the fact is this all fades into obscurity when compared to the impact the agent you choose will have on the eventual outcome and your experience of the process.

The reality is despite everything else real estate is a personal service profession. That means that not only will you have the ensure that the profession you choose:

Is suitably qualified as an estate agent;

Knows how to craft a unique marketing plan tailored to your home;

Knows the technical aspects relating to property;

Knows the law applicable;

Has the experience;

Is client focussed, not remuneration focussed;

Cares about clients;

Can effectively execute your mandate; and

Most importantly is someone you trust.

When you decide to sell your single biggest advantage or challenge will be your agent. That is because they will be at the coal face with you, they will make sure your home is ready to go to market, they will be the one who will craft the strategy, make sure the marketing materials are stellar, engage with people interested in your property, qualify them, make sure only able buyers view, sell them on your home and the lifestyle it offers, negotiate, advise you on clauses required, field your questions on clauses inserted by the buyers, evaluate offers, and assist you to select the best offer (which may not always be the highest offer).

When the ink is dry on the mandate and the sparks begin to fly as the many working parts in the process begin to turn, it does not take long to realise that the agent you chose, is the determinant as to how you will experience your sale.

Let’s consider a few hypothetical scenarios:

Sally works as a rep in the sales department of a telecom company. She decides one day to get into real estate and joins an international brand. Through skilful marketing and personal branding, Sally is instantly transformed into an estate agent with a web site, business cards, and marketing material. Sally is great with clients but how much does she know about property?

Max is an agent with a company which does weekly training at the compulsory Monday morning meeting, where he is bored stiff. He just wants to get out and make money. Max is very successful but tends to leave a trail of unhappy clients in his wake (thank goodness for property’s long sale cycle).

Now let’s consider the case of Maggie. Maggie has a B.Com, studied the EAAB courses, passed the designation exams, maintains her CPD requirements, and still studied addition courses to make her a better agent. Maggie is client focussed, technically proficient, a formidable negotiator, detail orientated, is an area expert, and her clients love her. She does not chase hundreds of listings because she still wants time with her kids. Maggie has her own company.

When the action starts your agent will be what counts. At that point, whether their brand has millions of agents all over the globe, sells trillions in real estate every hour, has a university dedicated to learning, the biggest brand promotion budget; all means nothing. The hard cold reality is that most of that is all good and well but a great agent will still trump all of that and get you the best outcome with the best experience.

It’s maybe not as easy but that does not mean that its massive impossible.

In the blog next week, will be my suggestions on how to interview to find the right estate agent to sell your home.

]]>https://clintonbegley.co.za/2018/07/18/estate-agency-agent-or-brand-which-makes-the-difference/feed/0question-mark-1872634_1280clintonbegleyzaValuing a Property – Can you replace the human element?https://clintonbegley.co.za/2018/05/23/valuing-a-property-can-you-replace-the-human-element/
https://clintonbegley.co.za/2018/05/23/valuing-a-property-can-you-replace-the-human-element/#respondWed, 23 May 2018 09:20:08 +0000http://clintonbegley.co.za/?p=1256Continue Reading →]]>Value is a tricky thing to define, precisely because it is so subjective.

The Oxford Dictionary once provided the following definition:

“1 the worth, desirability, or utility of a thing, or the qualities on which these depend“

This brings on to slightly more property focussed definition, which is often quoted:

“The most probable price that a voluntary, informed purchaser will pay a voluntary, informed seller in a normal open-market (arms-length) transaction at the date of valuation – after allowing for proper marketing prior to the valuation date – when neither party is under any compulsion to sell or to purchase, other than their normal desire to transact”

This is of course very academic but two points bear noting:

It’s highly subjective process; and

Value can vary greatly based on apparently insignificant differences in the property.

We are living in an incredibly exciting time especially in the property space. At no time in the past did property data companies (which collect property data and organise it into information) ever have as much information as now. If one links that to IA and the incredibly gifted boffins they have designing algorithms etc, it could be said that a desktop valuation should be the most spot on it has ever been.

If that is the case there is no longer any need for valuers – because the computers have it covered. But do they really?

I am sure there are many people who would, possibly from a vested interest perspective argue differently, but can a computer really value a property correctly.

Let’s consider a few aspects which a computer may not know:

A favourability of a unit’s position within a complex (not all locations are valued the same). There may be variation caused by views, perceived safer location, closer access or removal from the clubhouse, location nearer or further from the gate, etc

The condition of the units surrounding this unit (for example if the neighbour’s home has not been painted in living memory;

The type of neighbours (noisy, untidy, shady, etc)

New developments in the immediate area like the building of a new complex that will adversely affect the property’s value.

The list goes on ….

But one will often find that free-standing individually built homes pose a particular problem. In an area where every home is different and sale happen seldom, how does one determine truly comparable properties so as to use as comparables? In other words how do we compare apples with apples when everything seems unique?

Municipal Valuations

The municipal value cannot be used because the very nature of the valuation method used is inaccurate. In my experience the municipal value seldom if ever truly represents the real value of a property. Most homes have never been valued on site, many have been upgraded, or left without a word to the municipality (which begs the question how accurate are those valuations? In some cases, the homes have been valued far too high but it was not opposed because it made the owner feel good that his property’s value was growing at pace, without considering that this value means nothing to buyers and purely determined the rates and taxes paid. I would suggest getting a knowledgeable estate agent to value your property after the proposed values are released to avoid paying unnecessary rates.

Identical Units

So maybe if one could find properties that were identical and sold recently would that provide the intelligent valuation systems a chance to shine? In my experience the degree of accuracy is limited. Soon after a developer sells units to buyers the homes begin to change. Some owners develop the gardens, install water features, and upgrade the unit within while another unit may be left stock standard and rented out. After a year or two, the difference in sale price will be marked in relation to the purchase price.

The remains that the ultimate arbiter of value is the buyer.

Local is Lekker (but may also be better)

It is exactly for this very reason that an estate agent, who is truly a local expert, can truly get to provide an estimation of selling price which is in the real range achievable.

This is because :

They know the area and what finishes the homes had that recently sold and can put the purchase price in context;

Data alone does not consider that the home down the street was sold to a family member at a conservative price, which cannot be determined off hard data. This could also be caused by a distressed or forced sale which did not result from an auction sale;

The soft shifts in the suburb very often are missed or misinterpreted, without local context;

The perceived value of developments in the area are often mistaken without local knowledge; interpret property reports, they have viewed homes in the area and know what money buys which gives them an idea of the supply and demand dynamics in the area;

But so what?

If I am selling maybe I can cut out an agent and just get my selling price from a desktop valuation.

Let’s consider a hypothetical example, there are many possible permutations but let’s consider unit X in Happy Land Estates. On paper unit 1 is:

56 sqm (like the other 100 units in the complex);

Sold 2 years ago for R600k like the 25 other units in its phase;

8 recent sales in the complex just sold for R765k each;

And another unit sold for R600k

The desktop valuation says the unit is now worth R740k

So the owner lists at R760k because that makes sense to him/her.

What does not appear in the information, on the valuation system:

A government department bought the 8 units which were furnished with upgraded finishes;

No private sales have gone through in the area because a new development which was promised to add massive value fell through;

The developer is still trying to sell a few units at launch prices with all costs included in the price;

A new development next to this development is launching, below the launch value of Happy Lands for similar units;

The unit in question is stock standard and is right next to the main entrance which makes a racket, open continuously at all hours of the night, and there have been a number of attempted break-ins, which were not reported to the police.

The owner lists and gets no offers despite being only a few thousand of the desktop valuation and can not understand why. The property stays on the market for months and in the process becomes stale and sells for below its actual market value.

The same can happen where a desktop valuation is below what can be achieved here the owner get’s less than the units worth and can cause serious losses.

Ultimately, computers and data do not buy homes. People buy homes and people are not constrained by logic or data. This is also the reason why even in the US estate agents have held their own despite the most advanced systems and impressive information systems.

In my opinion, get the best of both worlds. Get a local agent who knows their stuff, who uses the modern technology, and then discuss commission and the negotiate to a win/win deal.

There has been concern among some estate agents who have taken issue with lawyers acting as estate agents and engaging as such with the public at large.

There have also been a few articles written fervently defending the rights of attorneys to practice another profession unrestrained. But maybe let’s not try and shoehorn the law to fit the intention and let’s rather approach it more objectively. Let’s maybe ask questions which public interest demands.

Let’s maybe also look at the law and see if it ever was the legislature’s intention to allow attorneys under the jurisdiction of the law society, with no oversight by the real estate regulatory body (the EAAB).

The other issue is that the particular franchise takes a very lawyer centric marketing campaign which completely disregards the tremendous value added by real estate professionals and the modern technological advances in the industry and the tremendous effect of curated training programs. Yes, a lot has changed since those early days.

But in all such matters it is always better to start with: What does the law say?

SO WHAT DOES THE ESTATE AGENT’S ACT SAY?

The Act makes it very clear that only an estate agent can perform the full spectrum of services and functions laid out in the Act, under the supervision of the regulator, the EAAB.

To do so the estate must hold a valid Fidelity Fund Certificate (FFC) through the EAAB. It is only if these conditions are met that a person may legally be entitled to receive a commission from selling the property, for example.

The Act states:

a) means any person who for the acquisition of gain on his own account or in partnership, in any manner holds himself out as a person who, or directly orindirectly advertises that he, on the instructions of or on behalf of any otherperson–i) sells or purchases or publicly exhibits for sale immovable property orany business undertaking or negotiates in connection therewith orcanvasses or undertakes or offers to canvass a seller or purchasertherefor; orii) lets or hires or publicly exhibits for hire immovable property or anybusiness undertaking or negotiates in connection therewith or canvassesor undertakes or offers to canvass a lessee or lessor therefor; oriii) collects or receives any moneys payable on account of a lease ofimmovable property or any business undertaking; oriv) renders any such other service as the Minister on the recommendation

In the definition of “estate agent” in the Estate Agency Affairs Act 1976 (as amended) (hereafter referred to as the Act) states that the exclusion:

“does not include an attorney who, on his own account or as partner in a firm of attorneys or as member of a professional company, as defined in section 1 of the Attorneys Act, 1979 (Act No. 53 of 1979), or an articled clerk as defined in the said section of that Act, who performs any act referred to in paragraph (a), in the course of and in the name of and from the premises of such attorney’s or professional company’s practice”[My underlining]

It is in terms of this exception to the rule, that some lawyers believe that they can sell property. However I would like to posit that this is a very limited exception and that carrying on the full real estate functions of an estate agent, exceeds the ambit of the exception and as a result, their actions may well be a violation of the Act.

We need to unpack the meaning attached to these words to truly understand when an attorney is correctly acting within the parameters of the exception.

“does not include an attorney who, on his own account or as partner in a firm of attorneys or as member of a professional company”

This section addresses the various practice forms of attorneys such as sole practitioner, a partnership or as part of a professional company. It may be submitted that this comprehensive listing of the potential practice possibilities was inserted specifically to ensure that all possible permutations were covered, specifically so as not to allow for any uncertainty.

It may be held by some that by taking “on his own account” alone and out of the context will allow an attorney to, in his (or her) own name to practice as an estate agent. It is submitted that seen in context it is clear that the legislature merely listed the possible trading forms and it was never the intention of the legislature to by this wording allow an attorney to practice as a real estate agent.

“IN THE COURSE AND SCOPE…OF SUCH ATTORNEY’S OR PROFESSIONAL COMPANY’S PRACTICE”

“in the course of… such attorney’s or professional company’s practice” related to acting in the course of the attorneys practice as an attorney, not as an estate agent. As a matter of common sense, it was never intended that an attorney should be able to practice as an estate agent in the normal course of his practice.

WHY DID THE LAWMAKERS CREATE SUCH AN APPARENT GLARING EXCEPTION FOR LAWYERS?

We would like to think that the legislature must have had some very compelling reason?

The eventuality being considered is for a situation where the attorney is acting as an executor in a deceased estate or a liquidator in an insolvent estate. In these cases, the legislature considered that it would be expedient to make this exception to allow the attorney to perform the function of selling a property which fell within an estate being administered by the attorney.

But why then do so few attorneys sell properties when there are so many acting in these capacities? Some reasons may be:

Financial Viability – To be effective in the sales function, requires marketing platforms, which are not economically viable in limited numbers;

Specialisation – The professionalization and natural increase in the ability of estate agents has made operating in a limited scope, outside your normal field of practice, a very unwise decision;

Time constraints – An attorney’s practice is busy and time is in short supply, so the lawyer is very often office-bound or in court (if they have a general practice), whereas an estate agent needs to be out of the office performing the functions required of the real estate profession, which likewise demands a sizeable commitment of time;

Fees vs Commission – Financially, a lawyer makes their money in the office and being out of the office would result in lost fees;

Complexity – Over the last few years the role of the estate agent has evolved and so has the knowledge required to be an estate agent. Lawyers are not that arrogant as to believe that they know everything that an agent knows, nor do they have the sales-based network required to be as effective;

Market Knowledge – Despite lawyer’s extensive legal knowledge, that is only part of the estate agent’s function. Area knowledge, valuation ability et cetera are vitally important in achieving optimal sales in optimal time. It may be interesting to see how a lawyer (even in a small practice) can manage a practice, keep up to date on their legal professional knowledge, as well as maintain the same work rate as estate agent while keeping abreast of the market;

Training – The law society overseas training to attorneys as attorneys, the fact is that when you practice as estate agents while being an attorney you simply being trained in that function. When I practiced as a lawyer for well over a decade, the one gap in lawyer’s training is marketing and sales, which is an integral of the estate agent profession.

Risk – An astute lawyer knows that risk needs to be managed and ring-fenced. It is very difficult when you have removed the biggest defense against risk by in housing the agent function, within the legal function, effectively doing away with an additional level of controls.

Maintenance of professional independence – A lawyer can never be said to be in the pocket of an estate agent while they are independent, at worst keeping a separation prevents a conflict of interest and allows the estate agent to choose the conveyancer whom the agent knows to be the conveyancer who get’s the best results. It does not follow that the “agents” boss in a legal office is the best conveyancer but this employee would be in a very compromised position.

Underestimating the contribution of estate agents – An astute lawyer knows that in any profession there are lazy members, who ignore detail, and fly by the seat of their pants. But they also realise that there are also highly trained, professional, and efficient members of that profession and these members do a lot of work that never gets seen but makes their deals go through without a glitch, not because it worked out that way it was because they addressed issues before they became issues. This also takes time, which makes the lawyer more efficient and profitable at their specialty, as they do not have to deal with picking up the pieces afterward.

Fee determinations – Most fields where lawyers can sell in the course of their practice are deceased estates but here the lawyer is the executor and the work done falls into the 3.5% executors fee, which means that they would be doing more work for the same money, which in the time-constrained, high-pressure reality of today does not make financial sense.

WAS IT EVER THE LAWMAKERS’ INTENTION TO MAKE LAWYERS ALSO ESTATE AGENTS?

It would be a far stretch of reasonable interpretation (or common sense for that matter) to say that the legislature intended that attorneys should be allowed to operate in an unfettered manner, as estate agents, when the provision was created. It also makes more sense that had this been the intention that the Act would have specifically stated this but it does not.

One needs not be a senior counsel to appreciate the fact that no reasonable person would ever expect the practice of real estate brokerage to be in the course and scope of a lawyer and nor do the law societies otherwise surely they would be providing sales training, training in marketing of homes, staging, objection handling, and how to deal with the minefield of possible conflicts of interest. It may be submitted that the law societies have not been remiss in the duty to educate their members in this field because it was not conceived that their members should be practicing in this field, as estate agents.

The university syllabus at university does not cover nearly sufficiently the required knowledge areas, save law and the training and experience which an attorney gets in the office is legal practice driven, not what is required for training an effective estate agent.

If anything, a client could be excused for asking the question: As a busy lawyer how do you possibly get the time to be a full-time estate agent?

The law society may also have questions about supervision of articled clerks working off premises or supervision of the practice of the attorney if said attorney is off doing property viewings. If I was a client I would be very concerned if my lawyers were off selling instead of attending to matters in the office.

In addition, the law societies would not easily wish to interpret the scope of practice of legal practitioner this widely because it results in effectively creating multidisciplinary practices, which create a minefield of possible conflict of interest situations.

In addition, it would make defending the work of conveyancing tenuous when, say for example, estate agents decide to do conveyancing in-house, which possibility will increase, as we move to electronic deeds system.

But if it was the intention of the legislature to curtail the scope of what an attorney can do as an estate agent, surely there would be further limiters on what the attorney can do, which brings us to the words.

“and”

In legal interpretation, every word is important and essential to fully understand the intention of the legislation. This little word and is very important in the interpretation of the sentence. It means that not only must the operations in terms of the Act, by an attorney be within his “), in the course …and from the premises of such attorney’s or professional company’s practice” but must also simultaneously be:

“and from the premises of such attorney’s or professional company’s practice”

This is a very specific statement. The attorney must sell the property (being sold in the attorney’s course and scope” in the name of and from the premises of such attorney.

It can be made no clearer than that.

ITS ALL IN THE NAME

It has become a phenomenon that a certain franchise operates under a banner, such as Super Cheap (hypothetical name), for example.

The lawyers who are members then simply say they are Black & White Inc trading as Super Cheap.

Let’s start with the legal practice.

They practice under the Attorneys Act and are issued with a Fidelity Fund Certificate which allows them to trade as such, which stipulates under which name they can practice, just like estate agents.

In simple terms, an attorney who is acting under the jurisdiction of a law society cannot as an attorney trade under any other trading name as what is allowed by the law society, which allowed names are indicated on the said attorney’s fidelity fund certificate. It goes without saying that trading (as an attorney) under any other trading name is irregular, and should be addressed by the law society having jurisdiction over the said attorney.

The names of legal practices are highly regulated and any deviation from the names of the partners has to be approved by the applicable law society and will appear on their fidelity fund certificate, which makes sense.

But what of our hypothetical firm of Black & White Incorporated?

As attorneys, their company has one name and their practice or trading name is stipulated at Black & White Inc t/a Black & White Inc, on their Fidelity Fund Certificate.

They decide they would like to grow their conveyancing practice by having in-house estate agents. None of the partners have passed through the estate agent training, internship, or professional accreditation. They also don’t want to do the internship and write two sets of designation exams. But what to do?

It is not uncommon for attorneys to sometimes have the impression that all agents do is the contract, which incidentally is what lawyers do – so that’s it we can do this.

So, they buy a franchise, which in this case is the hypothetical Super Cheap franchise.

Now, they don’t want to practice as agents under their name, so they practice as Super Cheap. After all, they have a trust account, which does not get audited to the same extent as an estate agency, they don’t have to audit their business account (which agencies do), and they don’t have to do Continued Education required by the EAAB; so this sounds great.

One often sees references like this Black & White Inc t/a Super Cheap on property portals like P24, when you look at agency profiles, which is surprising.

So, let’s get this straight they are attorneys, so they fall under the jurisdiction of the relevant law society, allegedly trading in the course and scope as attorneys, but are doing so under a name not on their fidelity fund certificate, if this is the situation does anyone see a problem with lawyers potentially breaching the practice directives of their law society?

It is therefore clear that the property being sold by the attorney must be sold in the name of the professional practice’s name. It would be disingenuous to say that an attorney could comply with this directive by selling as Black & White Inc t/a Super Cheap Realty, after all does this appear on his fidelity fund certificate issued by the law society because in our example he does not hold a fidelity fund certificate from the EAAB.

But this is no attorney’s practice know as Black & White Inc t/a Super Cheap Realty.

The exemption applies to attorneys and the attorney’s fidelity fund certificate does not stipulate this trading name, hence it is not the attorney’s practice name.

BUT WHY WOULD A LAW FIRM POSSIBLY WANT TO PRACTICE AS AN ESTATE AGENCY?

It could be driven by a multitude of reasons such as:

The rise of the so-called super firms, which have built massive practices and through proven efficiency and have large estate agent followings;

The number of legal practitioners is increasing, which increases competition;

The high cost of running a professional practice;

The law societies have always tenaciously guarded the potential “capture” of work by provisions such as making it an offense to have a conveyancer’s name typed into a deed of sale for example;

A consolidation of real estate agencies has concentrated business and possibly some firms are not able to attract the business that they would like.

Law societies also have cracked down on the ability of conveyancers to so-called buy work from estate agencies.

And there may well be other reasons.

Whatever the reason, it may sound like a great idea to in-house another profession.

In such a model, one is looking to secure the conveyancing instruction by offering a discounted rate on conveyancing. The best way to do this would possibly be to:

Avoid the high costs of the highly regulated estate agency environment by using a perceived loophole (which it really is not);

Avoid the qualification, accreditation, training, and continuing education requirements of the EAAB, by being Attorneys (while at the same time not having to do any estate agency training through the Law Society);

Avoiding effective oversight by the EAAB (despite operating as estate agents) and oversight of the estate agent function by the Law Society (as it was never envisaged that attorneys should practice as estate agents;

Create the impression that estate agents are not as legally qualified as lawyers hence prey on people’s perceptions and fears;

Possibly, sell the discounted commission on the condition that the firm gets the conveyancing.

This may sound great but maybe we need to consider that:

Rightly or wrongly, estate agents are expected to met high standards of regulatory compliance through the EAAB. When I practiced as a lawyer my audit report was 2 pages long and as an estate agent its 7 pages. I think the EAAB is excessive, but the point being is that a registered estate agency is highly regulated, by the EAAB (who is not overseeing such a practice);

An estate agent practicing as such falls squarely under the EAAB, whereas law firms practising as estate agents, may be doing so outside the bounds of the Act, while also not be suitably being regulated by the applicable law society, which has not enacted provisions to deal with practice which was never envisaged for attorneys;

Any professional estate agent knows the applicable law required to protect their client, works closely with highly qualified conveyancers (from various firms, chosen based on proven knowledge, ability to resolve problems, proven track record, knowing full well that if performance drops, they will lose that real estate agent’s work);

Selling one product conditional upon the use of another product would possibly constitute conditional selling, which is not an accepted business practice;

The question that may cause concern is: Is the applicable practice the best practice to undertake the conveyancing? Or maybe, are the “agents” acting as such for the firm; truly free to guide the seller to appoint the most competent conveyancer (given that they may be employed to secure transfer instructions?)

Given that the agent and the conveyancer is the same company, what happens if maybe the person acting as the agent makes a mistake. Will the firm withdraw as conveyancers and direct the client to another firm exposing the agent (their employee) and the law firm to financial damages claim? Maybe they will but it’s an unenviable position loaded with the potential conflict of interest scenarios.

And if the agent does get sued, will the client have to sue Black & White Inc t/a Super Cheap; which entity really does not exist or does the client sue Black & White Inc? It may be said that you simply sue the company but this could get interesting because even in the case of a legal practitioner practicing on his own the law society will have authorized a trading name, as such, not the one he may be used to act as an agent.

And if both agent and conveyancer made a mistake, is it not better to hold two businesses liable instead of one?

Would it not be better to know that the agent is regulated by the EAAB and the Conveyancer by the Law Society, instead of the agent being not effectively being regulated by neither the EAAB or effectively by the Law Society (when acting as an estate agent)?

SUPERVISION

But what could happen where a law firms potentially unleash unsupervised candidate attorneys who have not quite even been considered qualified as attorneys into another field where the EAAB likewise wants interns to be supervised? Even if the attorney is a qualified attorney, what does he know of real estate brokerage? If we look at the importance of supervision for all professions, this is an area of extreme concern.

MARKETING & ADVERTISING

Let’s assume that Black & White Inc are attorneys and fall under the law society, which they do. Would that not also mean that all marketing must meet the law society’s guidelines on advertising and promotion? It would therefore not be possible for lawyers to promote themselves effectively as estate agents do. They would also not be able to do drops or truly engage with the market, as they are constrained by the relevant law society’s rules.

IS THERE PLACE FOR LAWYERS TO SELL PROPERTY

If one adopts the common-sense approach to interpreting the limited scope of attorneys who selling property, there is no conflict of interest and there is no problem vis-à-vis other legal firms, because as the executor they will do the conveyancing as a matter of course.

The other option is the attorneys can follow the professional path of real estate agents in terms of the Act and form a separate company. There would still be challenges in the sense that clients would still need to be given a choice of conveyancers but this is a better option.

In my view attorneys cannot engage with the public and perform the services detailed in the Act as services and professional functions of estate agents. It appears that the activities of certain legal firms doing this are in fact breaching the Act and various provisions of the regulations relating to the practice of attorneys. It is my suggestion that the Law Society of South Africa engage with the EAAB as a matter of urgency and issue a position paper on this.

Incidentally, a person performing the functions of a real estate agent who does not have a valid EAAB FFC or where the attorney is excluded from the Act; is not entitled to be paid commission for such activity. The raises the question whether commissions raise and paid by sellers instructing such attorneys could be reclaimed?

This post is a piece which questions and asks questions we should be asking. It remains a clients duty to thoroughly investigate their rights and get independent legal advice from their own legal advisor. Commission amount should never be the deciding factor in appointing a real estate broker and always remember commission is negotiable.

]]>https://clintonbegley.co.za/2018/03/01/can-attorneys-sell-property-an-alternate-perspective/feed/0LawForSaleclintonbegleyzaLawForSaleSo you think more agents will get it sold, …think again.https://clintonbegley.co.za/2018/01/08/so-you-think-more-agents-will-get-it-sold-think-again/
https://clintonbegley.co.za/2018/01/08/so-you-think-more-agents-will-get-it-sold-think-again/#respondMon, 08 Jan 2018 11:24:44 +0000http://clintonbegley.co.za/?p=823Continue Reading →]]>I read an article by Debbie Justus-Ferns, divisional manager of Renprop Sales, which was interesting titled: “Selling property: 4 pitfalls of using multiple agents”. In which she mentioned creating the wrong impression, double commission claims, legal action around false expectations, and the danger of a breach in security. It was indeed a very – to the point article.

In so many areas of our lives, we treasure exclusivity because in our life experience it goes hand in hand with trust, commitment, safety, and peace of mind. I am not saying that that trust is always deserved with all partners, but that is one of the great questions – “Is this person the right person?”.

Let’s assume that you have done your homework, interviewed multiple agents, checked credentials, checked their references, checked their sales records of actual sales (after all anyone can publish reams of sold properties (no one checks these). Then you took a reality check and excluded the purveyors of false hope and pie crust promises. If an agency estimates the possible selling price far higher than other agents or makes claims of having hoards of buyers exclusive to them – these also need to be excluded.

So you found the one, but do you commit to them?

This is why it makes perfect sense.

EXCLUSIVITY SELLS – This could be the topic of a post on its own because it is sage wisdom.

COMMITMENT – Try doing anything with someone else, where one party is not committed – it seldom, if ever ends well. Why should property be any different?

ACCOUNTABILITY – The amount of accountability is inversely proportional to the number of agents.

COMMUNICATION CHALLENGES – Let’s accept that selling property is a fluid process where effective communication is key. Not only do things dynamically develop as the process progresses but information passed on at the beginning may be relevant at the conclusion of the sale. If there is one agent, no problem – but more than one agent can lead to gaps as to what was communicated and to whom – which can get confusing.

RESOURCE ALLOCATION – Real Estate, like any business, allocates resources based on the probability of success. If a brokerage has one prime listing slot and four listings, the first criteria will be which are sole and exclusive listings? After all, why should we boost a property where we might attract the buyer but they may sign with an agency whose efforts have been lackluster?

THE SAME BUYER POOL – We all operate in the same buyer pool. The idea that one agency has any real exclusivity, is a dream of many agents, but in the internet age – it remains a dream.

INCONVENIENCE – More than one agent means you are going to be inconvenienced. A golden example of this is when the same buyer will make appointments with more than one agent, only to realise their mistake when they pull up outside a home that they have already viewed, which happens so often.

YOU CATCH MORE AGENTS THAN BUYERS – So often a seller has the idea that more agents mean more buyers, only to find out that the seller attracts more agents than buyers. Why is that? There are agents who are always just looking for listings as click bait. Their rationale is that is they sell it, that would be awesome but if not they will get buyers which they could place elsewhere or they may find other sellers (who will commit).

LACK OF FOCUS – This happens more often, as the number of agents increases.

There are many more reasons why electing to go with multiple agents does not translate into better outcomes for the seller but those mentioned above are the most common.

If you want to succeed in selling your property for the best possible price in the shortest time possible – interview to find the best agent for you and then give yourself the security of a mandate, which clearly sets out the rules of the relationship.

]]>https://clintonbegley.co.za/2018/01/08/so-you-think-more-agents-will-get-it-sold-think-again/feed/0house-for-sale-2845213_1920clintonbegleyzaUnmet Expectations: the Cause of Problems in Property & Business Purchases?https://clintonbegley.co.za/2017/12/11/unmet-expectations-the-cause-of-problems-in-property-business-purchases/
https://clintonbegley.co.za/2017/12/11/unmet-expectations-the-cause-of-problems-in-property-business-purchases/#respondMon, 11 Dec 2017 18:44:09 +0000http://clintonbegley.co.za/?p=1228Continue Reading →]]>In my experience, the biggest cause of negative consequences when people buy property or business is most likely: unmet expectations.

It does not matter if these expectations were communicated or to the degree that such communication took place. The buyer feels shortchanged, cheated, tricked, duped, beguiled – you get the idea.

This simple root cause is so simple but can manifest in many ways from mild irritation to rage. This emanates from the buyer having a certain set of expectations at the outset, which was not met or in their opinion were not met to the level expected. At this point, it is evident that the satisfaction of expectations is, in fact, a subjective test and that means getting it right is exceptionally difficult, reminiscent of Hercules fighting the Hydra.

It all starts as most relationships do, at the dating phase where the property or business are putting their best foot forward and maybe the agent is really emphasizing the positives and playing down the negatives. In a business sale, the seller has ensured the books look great, the clients look great (on paper) and the business’s growth prospects look awesome.

Then everyone commits and everyone lives happily ever after. But that is not how the story goes, well at least not every time.

When the honeymoon is over, the reality of life sets in. Now, seen through the cold, harsh lenses of reality all these positives lose some of their sparkle eclipsed by problem after glaring problem. These problems may be serious, which may have the buyer identifying with Ripley in the movie Alien.

But how can something so right, go so wrong?

Let’s accept that buyers have a duty to conduct due diligence, in the case of property to make a thorough inspection of the property, and in no small measure to apply common sense before buying. Just like when buying a car and getting an AA inspection, a home buyer can insist on an inspection report, arranging for a professional to inspect a serious crack or getting a roofing contractor in to provide proof that the roof is in good nick. We should also be checking that title deed, check for servitudes, and insist on approved building plans. We don’t contract using spartan paperwork which is simple to understand and quick to sign but turn out to be thin on essential details. A business sale is no different for a buyer.

But if these logical measures make so much sense and bestow peace of mind, why are they seen so seldom in many sales?

The answer is normally cost and people don’t want to lose the deal. They do cost and being human and in the dating phase, we rationalise our way past the need to take care and assume it will all be fine.

In my experience the best approach may include amongst many other elements, the following:

Sellers must make full disclosure of all the challenges and defects, in writing with enough details for the buyer to fully understand and with sufficient clarity to prevent misunderstanding, before making the offer.

The Seller should, when in doubt over declare the defects/challenges.

The Seller’s agent/broker needs to fully understand the buyer’s expectations, as part of the sales process and manage the expectations on both sides.

The agent/broker must ensure that the “pixie dust” in the buyer’s eyes does not blind the buyer to issues that will not live us to the buyer’s expectation.

If there are issues such as a roof that leaked or a problem with the business, that the remedial action taken is fully declared to the buyer and the result (if known)

The buyer must be prudent and must make a thorough investigation of what is being purchased. (I know that sometimes buyers feel that they are being rude by looking inside cupboards for example but this is necessary).

Use logic and do research. So often a defect arises which is so evident that everyone assumed that it was patent and in law it is, but it did not occur. If in doubt, check and check again. It is better to careful – after all the saying goes,”…act in haste, regret at leisure”.

Gather a multidisciplinary team, as may be required, to address key aspects like a legal advisor, relevant contractors, financial advisors, et cetera.

Communicate – this is the most important of all

In short, making sure that the buyer’s expectations are known, understood, and managed is vital ensuring a satisfied buyer and avoiding problems down the line.

From a buyer’s perspective being thorough in your due diligence process, making a thorough inspection, and really determining whether what is being bought will meet your expectations is not only great to ensure happiness but is also good business practice.

Clinton Begley (PPRE MPRE CEA B.PROC (NMMU)) is the co-founder, Principal/Director at BOLD REALTY, a Business Broker, Coach, and social media advissor; in Port Elizabeth, South Africa. In addition, to his passion for people and real estate, he is also an experienced trainer, coach, and mentor. He holds a B.Proc degree through the Nelson Mandela Metropolitan University and is a non-practising Attorney, Notary, and Conveyancer (with over a decade of experience). His legal and real estate experience is augmented by studies towards an MBA degree through the Nelson Mandela Metropolitan University Business School, which he is scheduled to complete soon. This article reflects the personal opinion of the author only, it is NOT intended as legal advice nor may any reliance be placed upon it. The article is purely for information purposes and you are advised to consult an expert before making any decision.

So often sellers are so excited at the idea of what they plan to do after they sell that they do not pause and consider what will they get out of their sale and will it be enough, for what they planned.

But should the estate agent not guide them and assist them to do this?

Of course, they should but sometimes it may happen that the agent is more excited than the seller at getting the listing and for various reasons like lack of proper training, lack of experience, and or a number of other possible reasons, neglects to do a net sheet with the seller.

But what is a net sheet?

A net sheet is an estimation of the likely net proceeds you will likely realize from the sale.

Since nobody really can foresee every eventuality nor the exact amount of a future expense; there is always a degree of estimation, although increased accuracy does come with knowledge and experience.

This post is not a comprehensive list, although it will cover the most common parts of the calculation:

First of all, let’s start with the likely selling price, the offer amount, or the sale price (this will depend on the stage at which the net sheet exercise is done. In my experience, it is better to do this at the beginning of the sale process because it allows the seller to make more informed decisions and also so that the seller can determine their bottom line.

Settlement of the mortgage bond

The first deduction from a sale is the bond settlement amount. This is the amount required by the bondholder to consent to the cancellation of the mortgage bond over the property. Due to the nature of the process, the amount claimed initially, is often slightly more than what is required. The bank will usually refund any overpayment soon after the bond cancellation.

90 Day Notice

The bank is entitled to 90 days notice before the bond is canceled. Your estate agent would have advised you at the outset to give notice to your bank of your intention to sell your home, which begins the 90 day period, some of which will be take off as the conveyancing process takes its course. But if the bank has not had a full 90 day’s notice, it will recover the pro rata interest that it would have become due, which is also deducted as part of the bond cancellation process.

Bond Cancellation Fee

As the seller, you will be responsible to cancel the bond/s over the property being sold. This amount can vary and is also affected by the number of mortgage bonds that need to be canceled.

It is important to remember that even if your bond is fully paid up, that you will still need to cancel the bond over the property.

According to Alan Els, a director at the leading Port Elizabeth conveyancing firm, Greyvensteins Inc, a bond cancellation at time of writing this post would be about R3,160 and would increase by R281 with every further bond.

Lost Deed Application

So often a property is bought cash or the bond is previously canceled and the title deed was delivered to the owner, who could have misplaced it or maybe it was destroyed. In this case, the owner will need to apply for a replacement deed. This cost will also be deducted from the seller’s proceeds of the sale.

Alan advised that at present a lost deed application would cost in about R2,630.

Estate Agent’s Commission

This is a negotiated fee which is mostly a percentage of the selling price along with Value Added Tax (VAT) at 14% (unless the agency does not have a very high annual commission earnings).

Which brings us to an example of a real net sheet.

Mr A sells his home for R4,000,000 through Bold Realty, on which deal the negotiated commission was 2% plus VAT. There was a R1,000,000 mortgage bond over the property with a balance of R200,000. The sale was done just days after the notice was given. The purchaser is buying cash so the transaction is likely going to register within 60 days.

Purchase Price: R4,000,000

Commission: R80,000

VAT on Commission: R11,200

Bond cancellation amount R204,000

90 Day “penalty”: R1,500

Bond Cancellation fee: R3,160

Estimate net proceeds: R3,700,140

This net sheet allowed Mr A to make an informed decision on what money would be available from the sale. It also assisted Mr A’s tax advisor to advise him on possible tax implications flowing from the sale like Capital Gains Tax (CGT).

It is important to realize that the amounts quoted above are hypothetical except the amounts mentioned by Alan. However, these costs are based on a standard transaction and do change from time to time. It is therefore advisable to get contemporaneous advice from your property practitioner, your conveyancer, and your tax advisor.

]]>https://clintonbegley.co.za/2017/10/05/selling-how-much-will-i-get-out/feed/0b610a321-e02c-4a07-9c99-a4ab11d49ea1_calculateclintonbegleyzaSo how does the municipal value of a property affect its rates?https://clintonbegley.co.za/2017/08/21/so-how-does-the-municipal-value-of-a-property-affect-its-rates/
https://clintonbegley.co.za/2017/08/21/so-how-does-the-municipal-value-of-a-property-affect-its-rates/#respondMon, 21 Aug 2017 12:16:00 +0000http://clintonbegley.co.za/?p=981Continue Reading →]]>In Port Elizabeth, South Africa the local authority known in SA as the municipality collects rates, along with other utility fees. In accordance with its mandate, it budgets an amount to be collected via rates and this, in turn, is allocated based on the valuation of the property less R15,000 * by a billing factor.

This system is fair but it is fraught with technical challenges. Firstly, how does one accurately value a home without a site visit by a valuer? A so-called desk top valuation can only provide a guesstimate at best. The solution is to try to determine the valuation based on area parameters, but we all know that no two properties are the same.

By the local authorities challenges aside, how does this affect the person in the street, the person who ultimately must pay these rates calculated by this system?

Now many property owners are only in passing aware of the municipal value of their property. After all, the valuation roll of the municipality has for many been the least likely place for them to visit. then again we all got the letters as rates payers which informed us what the proposed 2017 value of our homes would be. At this point, many would have been quietly satisfied that the municipality recognised so much value in their home when others were being so skeptical.

Some homeowners may have questioned how the municipality came to the adjusted values. There has also been a number of objections leveled against the increase in municipal values. This also must be seen in context. the last valuation of also very much a guesstimate, which was also very high.

So imagine Mr. H (a hypothetical land owner) who owns a home in a quiet leafy suburb, upper middle-class suburb – inhabited mostly by higher-income individuals. He bought his home in 1981 for R250,000 and done very little to it save for a few running repairs. In the interim, the neighbours sold and the new buyers gutted and renovated, resulting in the average sale price in the area rising to R1,8 million, while his home would likely only be sold at R1,3. So when the 2013 valuations were done he was happy that municipality valued his home at R1,750,000 and smugly remembered those who had thought so lightly of his home. At this assumed

At this assumed value the rates on this property would be R1,609.06 (i.e. R19,308.82) instead of the R1,191.73 monthly or R14,300.77 annually. This means that not getting a valuation and opposing the municipal valuation cost him R5,008.82 more per year and since it stays in effect for 4 years he has lost approximately R20,035.28.

But then the municipality in 2017 applied a substantial assumed value increase, which means that they now assume that his property is now worth R2,054,325, despite an economy in recession, Port Elizabeth being a factory/holiday town, record unemployment, you get the picture. As an agent, you know that capital growth has been underwhelming and that trend is not likely to change. Yes, the municipality is being better run but that will not have that greater effect when the economy is down, instead it might ameliorate the fall in values but growth will be subdued. If we got 5% we would be happy, we have simply not seen these kinds of growth.

As an agent, you know that capital growth has been underwhelming and that trend is not likely to change. Yes, the municipality is being better run but that will not have that greater effect when the economy is down, instead it might ameliorate the fall in values but growth will be subdued. If we got 5% we would be happy, we have simply not seen these kinds of growth.

So Mr H’s house four years later has fallen back with its maintenance because he simply has not had the cash for needed upgrades. So given that he has a great address, is he had to sell now, he would be lucky to get R1,450,000 (an 11.54% increase, although it is more likely that it would be closer to 5% i.e. R1,365,000 – but let’s be positive).

At the new 2017 valuation of R2,054,325; his rates at the old tariff would have been R21,743.28 annually or R1,811.94 per month i.e. R202.88 per month (or R2,434.56 per year. But then one considers the increase in the billing factor. So now, Mr. H has a home which the valuation roll says is worth R2,054,325, on which the new rates are now higher. So annual rates are now R22,695.65 (R1,891.30).

Now let’s assume that if he sold now he could achieve an optimistic price for his home at R1,450,000, this would be the market value and which should be the same as the municipal valuation. If the municipal valuation was correct, the rate would be R15,970.12 or R1,330.84 monthly. If Mr. H, keeps the home for the next 4 years at the incorrect municipal valuation he will be overpaying by R6,725.53 per year i.e. R26,902.12 over the full four years. Incidentally, one cannot ignore the cumulative effect on an incorrect municipal valuation and increased rating factors.

This post is not trying to make a social comment on the valuation system or the rating tariff – the real lesson is that the owner of a property can cost him or herself thousands annually if they fail to get a proper valuation of their property and oppose the municipal valuation in term of the Act. Omitting to act could be costing you thousands and you are not even aware of it.

Omitting to act is costly whether you know it or not.

Get a valuation as a starting point and go from there.

NOTE: All facts are fictional and the amounts are purely for purposes of illustration and the correctness of which is not guaranteed.